How to Avoid California Overtime Violations: Compliance Guide for Employers

Overtime violations account for 73% of wage theft cases, making compliance critical for California employers.¹ California’s overtime laws are among the toughest in the nation, and non-compliance can cost businesses millions in penalties. This article continues our series on How to Stay Compliant with California Wage and Hour Laws in 2025, highlighting the essential points about California overtime to keep your business compliant.

Here’s what you need to know.

Top 3 Takeaways

1. California’s Overtime Rules Are Stricter Than Federal Law: Employers must pay overtime based on daily hours worked, not just weekly totals.  

2. Regular Rate of Pay Includes More Than Just Hourly Wages: Overtime calculations must include bonuses, commissions, and shift differentials. Miscalculating based only on base pay can lead to costly violations.

3. Off-the-Clock Work and Misclassification Are Major Compliance Risks: Employers are liable for unpaid overtime if they allow or fail to track off-the-clock work. Job titles don’t determine exemption status—actual duties and salary thresholds do.

Table of Contents:

1. California Overtime Laws vs. Federal Standards

2. Hourly Rate vs. Regular Rate

3. Penalties for Incorrect Overtime Pay

4. Off-the-Clock Work

5. Overtime Exemptions in California

6. Best Practices

7. Frequently Asked Questions (FAQs)

California Overtime Laws vs. Federal Standards

California overtime laws go beyond federal requirements. Employers must pay:

• 1.5x the regular rate for hours beyond 8 in a single day or for the first 8 hours on the seventh consecutive day.

• 2x the regular rate for hours beyond 12 in a single day or for all hours beyond 8 on the seventh consecutive day.

Example: Daily Overtime in California

California’s daily overtime rules can trigger overtime even with fewer than 40 weekly hours. For instance, if an employee works:

• Monday, Wednesday, Friday, & Saturday: 5 hours per day

• Tuesday: 13 hours

Despite a 33-hour workweek, the employer owes overtime:

• Tuesday: 8 hours at regular pay, 4 hours at 1.5x, and 1 hour at 2x pay.

Hourly Rate vs. Regular Rate: What’s the Difference?

The hourly rate is the base pay per hour, but overtime must be based on the regular rate of pay, which includes additional compensation like bonuses, commissions, and shift differentials.

Paying overtime solely on an employee's base hourly rate rather than the "regular rate of pay” is a common compliance error.

Example: Calculating Regular Rate of Pay with a Bonus

• Employee earns $16.50/hour and a $30 bonus over 30 hours.

• Regular rate = ($16.50 + $1 bonus per hour) = $17.50/hour.

• Overtime must be calculated using this higher rate, not just the base hourly wage.

Example: Multiple Pay Rates

• Employee works 30 hours at $18/hour and 10 hours at $22/hour.

• Regular rate = (Total earnings $760 ÷ 40 hours) = $19/hour.

• Overtime pay is calculated using the weighted $19/hour rate.

California employers must also account for cities and counties that mandate a higher minimum wage than the State.  When mobile employees, like commercial cleaners and janitors, work in multiple locations with different wage rates, employers must calculate overtime using the weighted average regular rate of pay to ensure accurate compensation.

What Is Not Included in the Regular Rate of Pay?

Certain types of payments are excluded from the regular rate of pay calculation for overtime purposes, such as:

• Discretionary bonuses & gifts (not tied to hours, production, or efficiency)

• Expense reimbursements (e.g., travel, tools, supplies)

• Pay for non-worked periods (vacation, holiday, sick pay)

• Premium pay (missed breaks, reporting time, call-back, split shifts)

• Tips (unless mandatory service charges are shared with employees)

Penalties for Incorrect Overtime Pay

This distinction between hourly and regular rates is crucial because the penalties for miscalculation can be severe, including:

• Wage statement penalties up to $50 per employee per pay period

• Waiting time penalties of up to 30 days for deficient final paychecks

• 10% interest on unpaid wages

• Potential Private Attorneys General Act (PAGA) penalties up to $100 per employee per pay period

The Overtime Compliance Risk of Off-the-Clock Work

California law prohibits working off the clock, meaning employers must track and pay for all time worked. Failing to record this time can conceal overtime hours, leading to unpaid wages, legal violations, and costly penalties.

Off-the-clock work includes working during meal breaks and rest breaks, as well as:

• Pre-shift preparation and post-shift cleanup

• Mandatory training and travel between job sites

• Putting on required safety gear

According to California labor law attorney Neil Shouse, "Employers who require or permit you to work off the clock can face a wage and hour lawsuit for back wages and other compensation."

Staples Faces Lawsuit Over Unpaid Off-the-Clock Work

In Maraya Lumadue v. Staples (2025), a former California Staples employee alleged unpaid off-the-clock work, including assisting customers before clocking in, waiting for time clocks, and completing tasks after clocking out. These unpaid minutes added up to 21 minutes per day—potentially pushing some employees’ hours past the 8-hour daily threshold for overtime.

Even if an employee voluntarily works off the clock, the employer may still be liable if they knew or should have known about the work.

Overtime Exemptions in California

Not all employees qualify for overtime. Common exemptions include:

• Executive, administrative, & professional employees earning at least $68,640 annually and performing exempt duties.

• Outside sales employees spending over 50% of time outside the workplace selling products or services.

• Unionized employees under collective bargaining agreements providing premium overtime pay.

While some salaried employees are exempt, California law still requires overtime pay for many salaried workers.

Example: Salaried Employee Overtime Eligibility

Maria manages a bookstore, makes hiring decisions, and handles administrative tasks. However, with a $39,000 salary—below the $68,640 exemption threshold—she is entitled to overtime for hours exceeding 8 per day or 40 per week.

Job Titles Don’t Determine Overtime Exemption

Promoting employees to managers doesn’t automatically exempt them from overtime—California law focuses on job duties, not titles. Managers spending most of their time on non-exempt tasks (e.g., stocking shelves, running registers) still qualify for overtime.

Burlington Coat Factory paid $11 million in a class-action lawsuit after assistant managers worked 50–55 hours weekly on non-exempt tasks without overtime due to underfunded labor budgets.

To avoid costly violations, employers must evaluate job duties carefully and use automated time tracking to ensure compliance with overtime laws.

Case Study: Costly Overtime Violation

A California company paid $8.5 million in back wages, damages, and penalties after underpaying caregivers who worked 24-hour shifts six days a week. Interest alone accrued at $1,018 per day.

Best Practices for California Overtime Compliance

To comply with California’s strict overtime laws, employers should focus on three key practices:

1 - Use Automated Time-Tracking Systems

Manual timekeeping is unreliable for California’s complex overtime rules. An automated time-tracking system ensures:

• Accurate daily and weekly overtime calculations

• Proper application of the regular rate of pay, including bonuses and commissions

• Tracking of seventh consecutive workday premium pay

• Compliance with meal and rest break requirements

2 - Audit Employee Classifications

Misclassifying employees as exempt from overtime is a common compliance issue. Employers should:

• Verify they meet salary thresholds for exempt employees

• Ensure job descriptions match actual duties

• Confirm that exempt employees regularly exercise independent judgment

3 - Train Supervisors and Managers

Supervisors often create overtime liability without realizing it. Training should cover:

• What qualifies as hours worked under California law

• Prohibitions against off-the-clock work

• Proper enforcement of meal and rest breaks

• Correct overtime authorization and documentation procedures

Ensuring Compliance with California’s Overtime Laws

California’s overtime laws present a complex compliance challenge that requires diligence and robust systems. Failing to comply can lead to costly consequences, including back wages, liquidated damages, penalties, interest, and attorneys' fees—financial risks that can impact businesses of any size.

Employers can mitigate these risks by implementing mobile time clock systems tailored to California regulations, conducting regular audits, providing comprehensive manager training, and establishing clear overtime policies.

With litigation and regulatory enforcement increasingly focused on overtime violations, proactive compliance isn’t just a legal necessity—it’s a smart business strategy for long-term success in California.

Frequently Asked Questions (FAQs)

1- What triggers daily overtime in California?

Any work beyond 8 hours in a single day qualifies for overtime, even if the total weekly hours are under 40.

2 - How do I calculate overtime for employees with different hourly rates?

Employers must use a weighted average of all rates earned during the workweek to determine the correct overtime rate.

3 - Do salaried employees qualify for overtime in California?

Yes, unless they meet specific exemption criteria, including earning at least $68,640 annually and performing exempt job duties.

4 - What types of pay are included in the regular rate of pay?

Bonuses, commissions, and shift differentials must be factored into overtime calculations, while discretionary bonuses, expense reimbursements, and tips are excluded.

5 - Can employees waive their right to overtime?

No, California law mandates overtime pay regardless of whether employees agree to work extra hours without it.

6 - What are the penalties for overtime violations?

Employers may face wage statement penalties, waiting time penalties, 10% interest on unpaid wages, and potential lawsuits under the Private Attorneys General Act (PAGA).

7 - How can employers prevent overtime compliance issues?

Using automated time tracking, auditing employee classifications, and training supervisors on overtime laws are key strategies to stay compliant.

1. Cohen, L., Gurun, U., & Ozel, N. B. (2023). Too Many Managers: The Strategic Use of Titles to Avoid Overtime Payments (Working Paper No. 30826). National Bureau of Economic Research. http://www.nber.org/papers/w30826